ABS investors' search for yield has taken them to an interesting place, where products that were once marginal are now the main attraction. In vogue are decidedly esoteric deals, ranging from whole business securitizations to structured settlement transactions.
It's no wonder these investors are hungry for action; they're certainly not getting any from the flatlining sectors of RMBS and CDOs and the lackluster world of consumer assets.
Despite the unusual nature of these fringe assets, sources told Nora Colomer for this month's cover story that they're not hard to sell as long as there's sufficient information on collateral and structure. Many of these deals used to be wrapped; in the past investors didn't necessarily take them apart and look at the insides. Now, to get comfortable they have to. But the data has to be there in the first place.
This not only holds true for esoteric deals. In RMBS, reporting can be an issue as well. In this vein, CoreLogic, together with ASR, sponsored a Web seminar on best practices in RMBS due diligence, with the transcript published in this month's issue. The roundtable discussed the available tools for investors and other participants to improve their due diligence on deals by going beyond the information contained in the loan tapes.
Elsewhere in the issue, contributor Poonkulali Thangavelu looks at the government's proposals for mortgage risk retention. These rules - which can potentially alter the CRE financing landscape - are aimed at getting securitization sponsors to keep skin-in-the -game. Although these proposals are well-intentioned, Poonkulali says that market players are wary that these regulations will make CMBS less competitive and drive up the cost of CRE funding generally.
Meanwhile, Felipe Ossa writes about the grey area for certain types of emerging market deals when it comes to regulations. There isn't a consensus about what should and shouldn't be regulated as a structured finance instrument, as epitomized by future flows. And even those emerging market deals and asset classes that have stayed clear of structured finance regulations might have to face them in the future, as enforcement evolves and local regulators adopt rules from the U.S. and Western Europe.
Finally, for this month's column Bill Berliner discusses and endorses proposals to reduce the amount of required servicing so that banks don't hold too much servicing-related assets, which are hard for these institutions to fund and hedge.
However, suggested changes by the FHFA and the HUD on servicer compensation for nonperforming loans present a more complicated issue. This is because nonperforming loans are usually serviced at a loss. Current proposals that make "the guarantor" liable for these payments, according to Bill, suggest that some costs resulting from servicing NPLs can be transferred to the GSEs or government agencies. This is just one of the unintended consequences of these proposals, which are inconsistent with the Obama's administration goal to phase out the GSEs and replace them with private capital.
- Karen Sibayan, Editor